The 5 biggest lessons I have learned as an adviser

By Guest |  24-01-19 | 
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Morningstar invites thought leaders from the investment community to share their insights. Views expressed are personal and should not be construed as investment advice.

This post by Sheryl Rowling first appeared on  

As financial advisers, we've had plenty of technical training. We have degrees, initials after our names, and lots of hours logged in continuing education. Unfortunately, aside from a few practice management breakout sessions at conferences, we don't get much practical advice on what's really important when running our firms. I can't claim to have all the answers for everyone in every situation. But I do have decades of experience and I've learned some big lessons--some the hard way. Here are the five top lessons I've learned as an adviser.

1. Don't take on every client. We all want to grow, especially in the early years. When we meet with a prospect, the additional AUM is always enticing. Despite that temptation, remember that the interview is a two-way evaluation. Will this person be a good client? Ask key questions and be on the lookout for red flags.

  • Why are they leaving their current adviser? If the answer is poor performance or high fees, should you be concerned? Was the portfolio being managed differently than how you would manage it? Was the fee structure similar to yours? You are asking for trouble if you take on a new client who will be unhappy with you for the same reasons they are unhappy with their current adviser.
  • Did they try to sue a previous adviser (or attorney or other professional)? A potentially litigious client should be avoided.
  • Did they cancel or reschedule the prospect meeting multiple times? Unreliable clients can be dangerous.
  • Do they seem antagonistic or overly uniformed? Extremes in any direction can lead to problems, whether it's a client who's always questioning you or a client who wants you to make all the decisions.
  • Do you have a bad feeling about this person? Your gut is a great guide. Listen to it.

If you feel a potential client is not right for you, how do you get out of the situation without creating hard feelings? The best approach is to say, "I don't think we're a good match for you because …" and make the reason about you, not them: "We only do asset allocation." If possible, refer them to someone else.

2. Protect your income stream. Rethink charging solely on AUM. I learned this the hard way in 2008. If your gross is $100x and expenses are $60x and the market drops by 30%, your net drops from $40x to $10x--a 75% reduction! Layoffs could seem like an appropriate solution, but in reality, you need the staff more than ever during a downturn (and you have a degree of moral obligation to your employees). Consider a fixed fee arrangement or a minimum fee provision. When I made this change, I had only a few clients question it. My answer: "If you want me to be able to stay in business, I need to have some consistency to my income stream." I also position my firm's rates to be on the high side of average. This is because we're worth it.

Early in my career, I was taught that that there are three ways to differentiate your services: quality, price, and service. It is impossible to successfully do all three. You will not be able to compete on price in the long run; there is always someone else who will charge less. So, I focus on quality and service--and charge slightly premium fees. Any client who feels we are not worth it is free to leave. (See lesson 1.)

3. Consider firm culture when hiring. If you just pay attention to resumes and references, you're missing the boat. It's imperative to consider how a new employee will fit in with your team. Friction among employees can kill productivity as well as make your days less enjoyable. I remember hiring a tax person several years ago based on his resume and interviewing with only one person. He turned out to be less than productive: he was not a team player nor did he ever go the extra mile. Eventually, he refused projects he didn't like and argued with his supervisor's review notes. Needless to say, we had to part ways.

Ever since then, I've had potential new hires interview with every employee. This has eliminated mishires and we have no problems with team interactions. I have also worked to create the culture that I want--and, it seems, my employees want as well. In addition to all of the usual benefits (health insurance, 401(k), holidays, sick pay, continuing education), my firm offers double the typical vacation days, half days on Fridays, an onsite personal trainer three days a week, pension plan, and flexible working hours. This helps to create a team of happy, motivated employees who don't burn out.

4. Focus on good work, not marketing. I have always held firm to the belief that doing excellent work for current clients leads to new clients. The opposite can create your worst nightmare. Doing less than excellent work can lead to a bad reputation and lost clients. In the long run, it is easier and more economical to keep clients than to try to entice and onboard new clients. When your clients are happy, they refer clients--who are often similar to them. And, if you've been picky about who you take on, you'll be continuing the stream of nice, profitable clients. Until or unless you feel you're on top of your game for current clients, spending time and money on marketing is, at best, a waste. Create a well-oiled machine and the clients will come.

It is also a good idea to periodically trim your client base. One seminar I attended recommended dividing your clients into quartiles:

  • High profit, low effort
  • High profit, high effort
  • Low profit, low effort
  • Low profit, high effort

Clearly, the first category is best, but the middle categories are also fine. Clients that fall into the last quartile (low profit, high effort) are not profitable. Be brave: fire them, nicely. As one of my early consultants (David Cotter) once said, "I can have a better time playing golf for no money than working for no money."

5. Be true to yourself. Financial success means nothing if you are not fulfilled. Think of this: Your career can span over 75,000 hours during your lifetime. Do you really want to spend all of that time feeling stressed, overworked and unhappy? Don't be afraid to break the common rules for success. You do not need to join groups to network or bring in business. Join groups or clubs because you like them. If you get new clients as a result, that's great; if not, at least you're doing what you enjoy.

In the early days, I joined a referral group that met for breakfast once a week. Rather than making or receiving referrals based on merit, we were expected to send business to other members solely because we were part of the same group. I found this to be distasteful and not really effective--not to mention that I hate to get up early. It was then that I decided I would only join groups based on my level of interest in the group. For example, I am now the treasurer at Jewish Family Service. It is a cause that I truly believe in and I feel good about the contribution I make. Have I gotten new clients as a result of this role? Yes. But it's not why I do it.

Just don't be afraid to do things your way. Focus on the work you like to do, not what you think will make the most money. Hire an extra person. Having a little extra time might mean you won't burn out down the road. Live your life and run your business with integrity. All of this will lead to a successful practice, doing what you want, with people you like--knowing that you're doing good!

If this all sounds "Pollyanna" to you, it could very well be. Yet, these five lessons have led me to a successful and fulfilling career. I wish that for all of you.

Sheryl Rowling, CPA, is head of rebalancing solutions for Morningstar.

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